About the Author

This year's
expiration of federal agriculture policies gives Congress an
important opportunity to take a fresh look at the $25 billion spent
annually on farm subsidies. Current farm policies are so poorly
designed that they actually worsen the conditions they claim to
solve. For example:

Farm subsidies are intended to alleviate farmer poverty, but
the majority of subsidies go to commercial farms with average
incomes of $200,000 and net worths of nearly $2 million.

Farm subsidies are intended to help struggling family farmers.
Instead, they harm them by excluding them from most subsidies,
financing the consolidation of family farms, and raising land
values to levels that prevent young people from entering
farming.

Farm subsidies are intended to be consumer-friendly and
taxpayer-friendly. Instead, they cost Americans billions each year
in higher taxes and higher food costs.

Lawmakers would
be hard-pressed to enact a set of policies that are more
destructive to farmers, taxpayers, and consumers than the
current farm policies. For these and other reasons, organizations
representing taxpayers, consumers, environmentalists,
international trade, Third World countries, and even farmers
themselves have united around the shared conclusion that the
current farm subsidy system is failing and in dire need of reform
during this year's reauthorization.

A Solution Seeking
a Problem

Before delving
into the minutiae of farm policy, lawmakers should first determine
what subsidies are intended to accomplish. When President
Franklin D. Roosevelt introduced farm subsidies in the 1930s,
Secretary of agriculture Henry Wallace called them "a temporary
solution to deal with an emergency."[1] That emergency was the
collapsing farm incomes that afflicted the 25 percent of the
population living on farms.

Today, farmers
account for just 1 percent of the population, and farm household
incomes are well above the national average, making the
original justification irrelevant. What modern market failure
or social problem is solved by farm programs today? Subsidy
advocates offer five flawed justifications.

Myth #1: Farmer
poverty.

This is the most
common-and provably incorrect-justification. The average farm
household earns $81,420 annually (29 percent above the national
average); has a net worth of $838,875 (more than eight times the
national average); and is located in a rural area with a low cost
of living.[2] The farm industry's current 11.4 percent
debt-to-asset ratio is the lowest ever measured and helps to
explain why farms fail at only one-sixth the rate of non-farm
businesses.[3]

Overall, net
farm income totaled $279 billion between 2003 and 2006-the highest
four-year total ever.[4] The farm economy is thriving, and farmer
incomes are soaring.

Furthermore,
farm subsidy formulas are designed to benefit large agribusinesses
rather than family farmers. Most farm subsidies are distributed to
commercial farmers, who have an average income of $199,975 and an
average net worth of just under $2 million.[5] If farm subsidies
were really about alleviating farmer poverty, lawmakers could
guarantee every full-time farmer an income of 185 percent of the
federal level ($38,203 for a family of four) for just over $4
billion annually-one-sixth of the current cost of farm subsidies.[6]

Myth #2: Crop
disaster compensation.

While farming
can be very profitable, farmers are always one weather disaster
away from losing their crops, but this risk can be handled with
basic crop insurance rather than with expensive annual
government subsidies. Washington does not address homeowners'
risks by writing each family an annual check regardless of whether
or not their homes have been damaged.

Giving farmers
$25 billion in annual subsidies regardless of whether or not their
crops have been damaged is no more logical. Crop insurance
markets, as well as futures and options markets, can
balance good and bad years in a way that is cost-neutral over
the long run.

Myth #3:
Maintaining a cheap and stable food supply.

Some contend
that food markets would fluctuate wildly without farm
subsidies. In reality, food prices of both subsidized and
unsubsidized crops are relatively stable. Given that the percentage
of family budgets spent on food has dropped from 25 percent to 10
percent since 1933, any potential price instability would have an
increasingly small impact on family budgets.[7] Even if price
stabilization was necessary, price support programs have
largely been replaced by commodity subsidies that stimulate
overproduction rather than stabilize prices.

Nor do farm
subsidies contribute to lower food costs. Two-thirds of food
production is unsubsidized and thus relatively unaffected by
subsidies. Of the remaining one-third, price reductions caused by
crop subsidies are balanced by conservation programs that
raise prices. Furthermore, food prices are based not only on crop
prices, but also on food processing, transportation, and marketing
costs. Bruce Babcock, professor of economics at Iowa State
University, has calculated that eliminating farm subsidies would
have virtually no effect on food prices.[8]

Myth #4: National
security.

Proponents
contend that without subsidies, American farm products would be
replaced by imports, leaving the United States dangerously
dependent on foreigners for food. However, the United States
currently grows more food than it needs to feed itself and exports
a quarter of its production.[9] The lack of subsidies has not
driven all beef, poultry, pork, fruit, and vegetable production out
of America, nor would it drive away production of currently
subsidized crops.

Myth #5: Other
countries' agricultural policies.

Europe and
Japan's farm subsidies bring American consumers food at
below-market prices. Rather than enact trade barriers to prevent
this, Americans should welcome the cheap imports and allow
farmers to focus on producing the crops in which the United
States has a comparative advantage. Responding with U.S. subsidies
and trade barriers has the net effect of raising prices for
American consumers and thereby limiting any progress in
free-trade negotiations. Australia largely eliminated its farm
subsidies in the 1970s, and after a brief adjustment, its farm
economy flourished. New Zealand implemented a similar policy in the
1980s with the same result.[10]

Two-thirds of
all farm production-including fruit, vegetables, beef, and
poultry-thrives despite being ineligible for farm subsidies.[11] If
any of the five justifications were valid, these farmers would be
impoverished, near bankruptcy, or replaced by imports, and both the
supplies and prices of fruit, vegetables, beef, and poultry would
fluctuate wildly. Clearly, this has not happened. In this
controlled experiment comparing subsidized and unsubsidized
crops, the doomsday scenarios described above have not occurred for
unsubsidized crops.

The most logical
explanation for the persistence of farm subsidies is simple
politics. Eliminating a government program is nearly impossible
because recipients form interest groups that relentlessly defend
their handouts. The public paying the costs is too busy going about
their lives to challenge each wasteful program. Furthermore,
supporters of farm subsidies often repeat the five justifications,
especially the myth that these policies aid struggling family
farmers. The difference between perception and reality in farm
policy is large.

How Farm Subsidies
Lack Economic Sense

Farm subsidies
serve no legitimate public purpose. Worse, they harm the farm
economy. This section explains both how farm subsidies work and the
economic incoherence embedded in U.S. farm policy. (See also the
accompanying text box, "How Farm Subsidies Are Calculated.")

The Main
Commodity Programs. Farm policy is extraordinarily complex.
This complexity conveniently insulates the farm policymaking
process within a small group of lawmakers and interest groups who
specialize in the details.

Subsidy
eligibility is based on the crop. More than 90 percent of all
subsidies go to just five crops-wheat, cotton, corn, soybeans, and
rice- while the vast majority of crops are ineligible for
subsidies. Once eligibility is established, subsidies are paid per
amount of the crop produced, so the largest farms automatically
receive the largest checks.

Subsidies are
also quite duplicative. The names of the three different commodity
subsidies do not adequately describe their purposes:

Marketing
loan program. Despite being called a "loan," this program has
the net effect of reimbursing farmers for the difference
between a crop's market price and the minimum level that Congress
sets every five to six years.[12]

Fixed
payments. Fixed payments are given to farmers based on their
farms' historical production and are unrelated to actual
production.

Countercyclical payments. This
program functions somewhat similarly to the marketing loan
program by subsidizing farmers up to a government-set target
price. This rate is higher than the marketing loan rate and
therefore represents an additional subsidy.

For farmers who
grow the subsidized crop, these policies have the net effect of
subsidizing them up from their crop's market price to its
countercyclical price rate, or even higher when the market price is
above the countercyclical rate and they receive fixed payments.

Remedying Low
Prices with Lower Prices. Farm policy is supposed to help
farmers recover income lost because of low crop prices. However,
farmers can increase their subsidies by planting additional acres,
which increases production and drives prices down further, thereby
spurring demands for even greater subsidies. In other words,
subsidies merely lower prices. This is the policy equivalent of
trying to use gasoline to extinguish a fire.

When the 1996
farm bill increased the marketing loan rate of soybeans from
$4.92 to $5.26 per bushel (which meant larger subsidies), farmers
responded by planting an additional 8 million acres of soybeans,
which contributed to the 33 percent decline in soybean prices over
the next two years.[13] Instead of alleviating low soybean
prices, the new subsidies accelerated their fall at considerable
taxpayer expense. Even the U.S. Department of Agriculture
(USDA) admits that subsidy increases have induced farmers to plant
millions of new acres of wheat, soybeans, cotton, and corn.[14]

In a free
market, low prices serve as an important signal that supply has
exceeded consumer demand and that production should shift
accordingly. By shielding farmers from low market prices, farm
subsidies induce farmers to grow whatever government will
subsidize, not what consumers really want. Stephen Houston Jr., a
Georgia cotton farmer, recently told TheAtlanta
Journal-Constitution, "We're just playing a game. [Market]
prices don't have anything to do with what we're doing. We're just
looking at the government payments."[15]

Contradictory
Policies. After handing out commodity subsidies that pay
farmers to plant more crops, Washington then turns around and pays
other farmers not to farm 40 million acres of cropland
each year-the equivalent of idling every farm in Wisconsin,
Michigan, Indiana, and Ohio. The Conservation Reserve Program,
which pays farmers to sign 10-year contracts pledging not to farm
their land, is often promoted as supporting environmental
stewardship. In reality, removing farmland to raise crop prices has
been the program's central long-term justification. Paying some
farmers to plant more crops and others to plant fewer crops simply
makes no sense.

Ignoring
Yields. The illogic does not end there. Businesses calculate
their revenues by multiplying the product's price by the quantity
sold. Similarly, farmers calculate per-acre revenues by multiplying
the crop price by the yield (crop volume per acre). However, farm
subsidy formulas focus only on crop prices and simply plug in a
historical yield measure for the quantity.

This makes
little sense. Revenues depend as much on the quantity sold as on
the price, and these two variables often move in opposite
directions. In agriculture, this leads to one of two
common scenarios:

Surging yields flood the market with crops and cause prices to
drop. Total revenues may increase, yet farmers still receive large
subsidies simply because the price fell.

Falling yields lead to crop shortages, pushing up prices. Total
revenues may decline sharply, but farmers do not receive subsidies
because Washington focuses only on the price increase and
assumes that farmers are thriving.

These scenarios
are not merely theoretical. The American Farmland Trust has
observed that a large drought in 2002 cut many Midwest corn
farmers' yields in half, but many farmers did not receive
subsidies because prices did not fall. The opposite
situation occurred in 2005 when very large corn yields flooded
the market, driving down corn prices and inducing large corn
subsidies despite healthy farm revenues.[16] Consequently, Washington
often wastes taxpayer dollars by subsidizing farmers when they need
it the least.

Subsidizing
Both Crop Insurance and Disaster Aid. In 2000, Washington
tripled crop insurance subsidies in an effort to eliminate the need
for farm disaster payments. The budget-busting 2002 farm bill was
also promoted as being large enough to reduce the need for disaster
payments.

Yet even with
generous farm programs and subsidized crop insurance, Congress
has passed a disaster aid bill every year since 2000 at a
total cost of $40 billion.[17] Congress has even drafted legislation
offering disaster aid to farmers who refuse to purchase crop
insurance at taxpayer-financed discounts. With Congress
continuing to pass large disaster aid packages, what crop insurance
subsidies are really funding is unclear.

The federal crop
insurance program currently subsidizes 60 percent of all premiums
for the 242 million acres that farmers have enrolled in the
program. It is run by 16 private firms that accept
federal subsidies but must charge the prices set by
Washington. Recently, an insurer that dared to offer farmers a
discount was upbraided at a congressional hearing, and
Representative Jack Kingston (R-GA) successfully authored
legislation to prohibit federal subsidies for that plan.[18]

The program
seems to have been designed to aid insurance companies and harm
taxpayers. Insurers are allowed to pass high-risk policies on to
the government while keeping for themselves the low-risk
policies that are likely to be profitable. Consequently, since
1998, the participating companies have earned $3.1 billion in
profits, while Washington has lost $1.5 billion. Additionally,
since 1998, Washington has paid nearly $20 billion in premium
subsidies and more than $6 billion to cover the insurance
companies' administrative costs.

All in all, the
crop insurance program spends $3.34 for every $1 in paid claims-and
it still has not prevented $40 billion in disaster aid.[19]

Driving Small
Farmers out of Business. Farm subsidies are promoted as
assistance to family farmers. In reality, they finance the
demise of family farms and prevent young people from entering
farming. Economists estimate that subsidies inflate the value of
farmland by 30 percent. High farmland prices make starting a farm
prohibitively expensive for younger people, who would also have
other expenses, including buying expensive equipment, seeds, and
pesticides. With young farmers unable to enter the industry, the
average age of farmers has increased to 55.[20]

Because
agribusinesses are already the most profitable, they often use
their enormous farm subsidies to buy out smaller family farms.
In what has been called the "plantation effect," family farms with
less than 100 acres are being bought out by larger agribusinesses,
which then convert them into tenant farms. Three-quarters of rice
farms have already become tenant farms, and other types of farms
are trending in that same direction.[21] Since 1945, the number of
farms has dropped by two-thirds, and the average farm size has more
than doubled to 441 acres.[22]

This
consolidation is not necessarily harmful and may improve
efficiency. Large agribusinesses are not villainous. They often
succeed because they can produce large quantities of food at low
prices. Furthermore, the blame for the tilted distribution of
farm subsidies lies with Congress, which writes the laws, rather
than with the agribusinesses that cash the checks that they receive
because of those laws.

Nevertheless,
taxpayers should not be required to finance this consolidation
through farm subsidies. By raising land values and financing
consolidation, farm subsidies drive out existing small farmers
and prevent new farmers from entering the industry.

The Scandalous
Distribution of Farm Subsidies

One can imagine
the result if Washington tried to solve poverty by creating a
welfare program that applied only to workers in the fast food,
cleaning, and retail industries. Everyone in those occupations
would receive a government check, with the richest executives
receiving the largest checks and the poorest workers receiving the
smallest. Workers in other industries would receive nothing, no
matter how poor they were.

Obviously, such
a policy would be nonsense, yet this exemplifies how farm subsidies
are distributed. The government's solution to alleged farmer
poverty is to subsidize growers of wheat, cotton, corn,
soybeans, and rice while giving no subsidies to producers
of fruit, vegetables, beef, poultry, and livestock. Because
subsidies are paid per acre, the largest and most profitable farms
receive the largest subsidies, while family farms receive next to
nothing.

Thus, a large,
profitable rice corporation can receive millions while a family
vegetable farmer receives nothing. Overall, farm subsidies are
distributed with little regard to merit or need.

Corporate
Welfare. Farm subsidies are promoted as helping struggling
farmers, but Washington could guarantee every full-time farmer
an income of nearly $40,000 for just $4 billion annually.
Instead, farm policy is designed to aid corporate
agribusinesses. Among farmers eligible for subsidies, just 10
percent of recipients collect 73 percent of the subsidies-an
average of $91,000 per farm. (See Chart 3.) By contrast, the
average subsidy granted to the bottom 80 percent of recipients is
less than $3,000 annually.[23]

According to the
USDA, the majority of farm subsidies are distributed to commercial
farms, which have an average household income of $199,975 and a net
worth of just under $2 million.[24] Commercial farms are also
among those that need subsidies the least because they are the most
efficient. Former U.S. Farm Bureau President Dean Kleckner writes
that the top quarter of corn farmers (usually agribusinesses with
economies of scale) can produce a bushel of corn 68 percent cheaper
than the bottom quarter of farms can.[25]

Multiplying this
larger profit margin by their substantially larger production
volume shows how large agribusinesses can be enormously profitable.
Yet these agribusinesses, not small family farms, receive most of
the subsidies, making farm subsidies America's largest
corporate welfare program. (See Table 1.)

That is not all.
Farm subsidies over the past decade have also been distributed
to:

Fortune
500 companies, such as John Hancock Life Insurance ($2,849,799);
International Paper ($1,183,893); Westvaco ($534,210); and
ChevronTexaco ($446,914).

Members of Congress, who vote on farm subsidies, such as
Senator Charles Grassley (R- IA, $225,041); Senator Gordon Smith
(R-OR, $45,400, plus a 25 percent ownership in three firms that
received $2,114,622); and Representative John Salazar (D-CO,
$161,084).[26]

Payment limits
do exist on paper. Subsidies are restricted to farmers with incomes
below $2.5 million, and an individual's subsidy may not exceed
$180,000 per farm or $360,000 for up to three farms. However, an
entire industry of lawyers exploits loopholes, rendering these
limits meaningless.

Farmers can
simply divide their farms into numerous separate entities and then
collect subsidies for each farm. For example, Tyler Farms in
Arkansas has collected $37 million in farm subsidies since
1996 by dividing itself into 66 legally separate corporations to
maximize its farm subsidies.[27] Other farmers evade
payment limits by signing up family members, such as the
Georgia farmer who reportedly collected thousands in
additional subsidies by signing up his two-year-old daughter
as an additional farmer, making her eligible for up to $180,000. As
Chuck Hassebrook of the Center for Rural Affairs has
concluded, "We have no [payment] limits today."[28]

Eligibility
Restricted to a Few Crops. Only one-third of the $240 billion
in annual farm production is eligible for farm subsidies. Five
crops-wheat, cotton, corn, soybeans, and rice-receive more
than 90 percent of all farm subsidies. Fruits, vegetables,
livestock, and poultry, which comprise two-thirds of all farm
production, are generally not subsidized at all.[29]
This is important for two reasons.

First,
those who assert that the absence of farm subsidies would cause
massive poverty, rapid price fluctuations, and the eventual demise
of the agricultural industry have not persuasively explained
why the two-thirds of the industry that operates without subsidies
has experienced none of these problems.

Second,
those who assert that farm subsidies are necessary to alleviate
farmer poverty have not explained why Washington should favor one
crop over another.

Farm
Subsidies for Suburban Backyards. In 1996, lawmakers noticed
that farm subsidies were only encouraging more planting and thereby
further lowering prices, so they created a fixed payments
subsidy that would pay farmers based on what had been grown on the
land historically without obligating them to continue planting
that crop. While designed with positive intentions to reduce market
distortions, these fixed payments have ended up subsidizing land
that is no longer used for farming. In fact, some homeowners are
now collecting subsidies for the grass in their backyards.

A recent
Washington Post investigation discovered 75 acres of Texas
farmland that had been converted into a housing development. Today,
the homeowners on these properties (which are worth well over
$300,000 each) are eligible for fixed payments for the lawn in
their backyards because of its "historical rice production."
Residents never asked for these subsidies and have even stated that
as non-farmers they do not want the government mailing them
checks.[30] Over the past 25 years, rice plantings in
Texas have plummeted from 600,000 acres to 200,000, in part because
people can now collect generous rice subsidies without planting
rice. If Washington insists on subsidizing farming,
subsidizing actual farmland rather than residential
neighborhoods that were once farmland would make more
sense.

Compensation
Not Based on Actual Sale Prices. As explained in the text box,
the marketing loan program (despite the "loan" misnomer)
effectively pays farmers whenever crop prices fall below a
government-set minimum. Amazingly, farmers are not compensated for
the actual price at which they sell their crops. Instead, they can
pick the market price on any day of the year and, even if they do
not sell their crops at that market price, receive a subsidy
based on it.

For example, in
2005, the marketing loan rate for corn in DeKalb County, Illinois,
was $1.98 per bushel. In September, the market price fell to $1.52
per bushel, and local farmers walked into the local USDA field
office and received a payment of $0.46 per bushel. The following
January, when they finally sold their corn, the price had risen to
$2.60 per bushel, well above the government-set minimum. The
federal policy allowed farmers to keep the subsidies as
compensation for a low market price at which they never actually
sold their crops. The amounts can be substantial: DeKalb County
farmer Roger Richardson received an extra $75,000 subsidy for
crops that grossed $500,000.[31]

These are not
isolated incidents. In 2006, national corn prices were only $0.05
below the $1.95 marketing loan rate. Nonetheless, corn farmers
received an average marketing loan subsidy of $0.44 per bushel.[32]
President Bush has proposed addressing this loophole by requiring
that monthly average crop prices-rather than daily prices- become
the basis for determining marketing loan subsidies. This would
prevent a one-day drop in crop prices from causing a year-long
surge in farm subsidies. Unless Congress acts, farmers will
continue to be compensated for low prices that never affect
them.

Specifically,
when the Livestock Compensation Program operated in 2002 and 2003
to compensate farmers for a drought, the majority of payments went
to farmers in areas with either moderate drought or none at all.
The USDA reportedly urged state and county officials to find
anything that could be interpreted as a disaster and use it to
qualify the county's farmers for disaster aid. Consequently, more
than 2,000 of the nation's 3,141 counties were declared agriculture
"disasters," including:

Whatcom County, Washington, for a distant earthquake that
registered only 3 on the local Richter scale and caused no reported
damage.

All 254 counties in Texas for "farm disasters," such as a storm
two years earlier and the Space Shuttle Columbia explosion.
This prompted a local farmer to tell reporters, "the livestock
program is a joke, we had no losses, I don't know what
Congress is thinking sometimes."

Fifty-three of Wisconsin's 72 counties, many for a small storm
that occurred two years earlier. This prompted local farmers to
call the disaster aid an unjustified "waste of money."

Nor were the
individual farmers required to prove any losses. Washington simply
sent them disaster assistance checks based on the number of
livestock that they owned. In other words, disaster aid was almost
completely disconnected from actual disasters.[33]

Livestock
disaster assistance is not the only example of misdirected disaster
aid. When sweet potatoes became eligible for crop insurance,
planting quadrupled, but crop failures surged. Farmers were
purposely growing sweet potato crops on unsuited land and skimping
on all production costs simply to collect generous crop insurance
and disaster aid-a practice known as "farming your
insurance." Accordingly, the sweet potato insurance program
was paying out $16 in insurance claims for every $1 paid in
premiums before Congress fixed it in 2005.[34] It is reasonable
to assume that this practice continues to some degree in other
crops.

The Overall Impact
of Farm Policy

Although farm
policies serve no legitimate purpose, they have profoundly
negative effects on taxpayers, consumers, and small farmers,
including:

Higher
prices. James Bovard once wrote, "For almost every farm
program, there is another equal but opposite farm program or
provision."[35] Commodity subsidies encourage
overproduction and therefore lower prices. The Conservation
Reserve Program encourages underproduction and thereby raises
prices. Tariffs raise import prices. Export subsidies lower
export prices. Price supports triple the price of sugar and raise
the price of milk. Calculating the net effect of these
contradictory programs, the Organisation for Economic Co-operation
and Development estimates that U.S. farm policy raises food prices
enough to cost consumers an extra $12 billion annually-in effect,
an average annual food tax of $104 per household.[36]

High
taxes. As the farm economy booms, Congress is expanding
farm subsidies. After averaging less than $14 billion per year
during the 1990s, annual farm subsidies have topped $25 billion in
the current decade since passage of the 2002 farm bill, the most
expensive farm bill in American history. All federal spending must
eventually be funded by taxes. Thus, these subsidies cost the
average household $216 in annual taxes in addition to $104 in
higher food prices.

No added
rural economic growth. A study by the Federal Reserve Bank of
Kansas City concluded that farm subsidies do not promote rural
economic growth. Between 1992 and 2002, the vast majority of the
783 "farm dependent" counties experienced job growth below the
national average. In fact, more of these counties suffered outright
job losses than experienced job growth exceeding the national
average.[37] While critics can argue that growth would
have been worse without subsidies, these policies are clearly not
creating new growth centers. Farm subsidies are likely funding farm
consolidations, which in turn are reducing employment on farms and
in related industries.

Small
farmers driven out of business. Small family farmers are
generally not eligible for significant levels of farm
subsidies. Furthermore, subsidies to large commercial farms harm
small farmers by (1) reducing crop prices[38] and, therefore,
farmer incomes; (2) raising the prices of farmland, thereby
preventing family farmers from expanding; and (3) subsidizing
agribusiness buyouts of family farms. Small farmers receive
virtually none of the subsidies, but they must endure the market
distortions and financial pain caused by these policies.

Less
trade. Federal Reserve Chairman Ben Bernanke has stated
that "the increase in trade since World War II has boosted U.S.
annual incomes on the order of $10,000 per household" and that
"removing all remaining barriers to trade would raise U.S. incomes
anywhere from $4,000 to $12,000 per household." Yet massive tariffs
and import restrictions raise food prices and make the American
economy less productive. Bringing free trade to agriculture
would also make free-trade agreements in other industries much more
likely.[39]

Conclusion

If Congress
takes the path of least resistance and extends current farm
policies for another five years, it will have surrendered an
enormous opportunity for reform. Most debates over federal programs
force lawmakers to balance a program's social benefits with
the costs of financing it, but current U.S. farm policies serve no
legitimate purpose. They burden American families with higher
taxes and higher food prices. They harm small farmers by excluding
them from subsidies, raising land prices, and financing farm
consolidation. They increase trade barriers that reduce incomes in
America and in lesser-developed countries. They are falsely
promoted as saving the family farm and protecting the food
supply. In reality, they are America's largest corporate
welfare program.

This year's farm
bill debate will test whether Congress is serious about reform or
will continue business as usual by pandering to special-interest
groups that are working to protect their federal largesse.
Congress and President Bush should take a more sensible approach to
farm policy this year. Instead of rubberstamping the status quo,
they should return to the market-based approach embodied in the
1996 Freedom to Farm Act.

[5] Covey et al.,
"Agriculture Income and Finance Outlook," pp. 40, 48, and
63. Net worth data consist of weighted averages of large and
very large farms' net worths.

[6] U.S. Department of
Agriculture, "A Safety Net for Farm Households," Agriculture
Outlook, January-February 2000, pp. 19-24. The authors
estimated a cost of $7.8 billion when including everyone who
reports any farm income, including "hobby farmers" who have other
full-time jobs. Restricting their data to full-time farmers,
defined as those working on lower-sales, higher-sales, and large
family farms and the fraction of limited-resource farms that are
also full-time, the total cost adds up to approximately $4 billion.
The eligibility threshold for several federal income-assistance
programs, such as the Women, Infants and Children (WIC) program, is
185 percent of the federal poverty level.

[9] The U.S. runs a
trade surplus in agriculture. See Economic Research Service, "Value
of U.S. Trade-Agricultural, Nonagricultural, and Total-and Trade
Balance, by Fiscal Year," May 2007, at www.ers.usda.gov/Data/FATUS/DATA/fynonag.xls
(June 4, 2007).

[10] Julian Alston,
"Lessons from Agricultural Policy Reform in Other Countries," in
American Enterprise Institute, The 2007 Farm Bill and
Beyond, pp. 83-86.

[12] The marketing
loan program can operate in different ways. It can be a loan that
must be partially repaid later in the year (called a marketing loan
gain), or the benefit can be paid in a lump sum as a subsidy
(called a loan deficiency payment). Despite these distinctions, the
net effect is to subsidize farmers up to the marketing loan rate
level.

[17] Ralph Chite,
"Emergency Funding for Agriculture: A Brief History of Supplemental
Appropriations, FY 1989-FY 2006," Congressional Research Service
Report for Congress, updated July 3, 2006. Chite mentions a
total of $36.5 billion, and approximately $3.5 billion was added in
2007.

[19]Ibid. The
article includes a graphic showing gains and losses since 1998. The
cost of premium subsidies and administrative costs since 1998 were
calculated using the 1998-2005 totals listed in the article and
then projecting forward for the 2006 and 2007 totals.

[25] Dean Kleckner,
"Farm Subsidies Are Not Saving the Family Farm," updated
manuscript. Copy available upon request.

[26] For a list of
subsidy totals, see Environmental Working Group, Farm Subsidy
Database. Corporate totals include subsidiaries. Subsidies for
lawmakers are described in detail in Ronald D. Utt, Ph.D., "How to
Discourage Conflicts of Interest in the Federal Agriculture Subsidy
Programs," Heritage Foundation Backgrounder,
forthcoming.